BRC ASIA LIMITED (SGX:BEC)
BRC Asia - A Record Half
- 1H22 earnings beat our expectations, as BRC Asia (SGX:BEC) continued to ride on the rebound in construction activities post COVID. Revenue grew 61.0% y-o-y to S$793.3m, and net profit +108% to S$39.8m, buoyed by higher steel prices (+~35%) and volume (+~25%). Sales in the Singapore market accounted for 85.5% of revenue, as BRC Asia remains a major supplier of rebars for the construction sector. As at end Mar, BRC Asia has order backlog of S$1bn.
- Gross margin rose from 8.1% in 1H21 to 8.7% in 1H22, with a S$1.8m reversal of provision for onerous contracts, versus S$28.9m provision in the prior year. BRC Asia set aside S$42.5m to cover undelivered orders that quoted steel price at below current market price. Excluding these provisions, gross margin fell from 15.7% in 1H21 to 9.6% in 1H22, as cost of raw materials rose in tandem with ASP.
Steel rebar futures are heading lower from May.
- Rebar prices surged by about 30% from late Feb when the war in Ukraine erupted, as steel exports from Russia and Ukraine were cut. Since early May, prices have eased by 17% to US$790/tonne. The decline in steel prices could bring about an earlier reversion of the S$42.5m in provisions for onerous contracts, an upside risk to our earnings projections.
- We are, however, more concern about the impact of a price decline. Building and Construction Association (BCA) stipulates a monthly material price index for implementation of fluctuation clauses in supply contracts for rebars for public sector projects. While this index has so far tracked the market price closely, there is a risk, albeit small, if rebars market price fall sharply and come in below the prices that BRC Asia has contracted to buy.
Net gearing has improved to 0.8x
- BRC Asia's net gearing has improved to 0.8x (from 1.17x at Sep 2021) with lower net debt to EBITDA of 2.6x (Sep 21: 4.3x). We believe debt will rise as working capital requirements grow with higher revenue. BRC Asia generates strong 1H22 annualized ROIC of 27.4%, which cushions the risk of rising interest rates.
- We raised our FY22E and FY23E revenue forecast for BRC Asia by 5.6% and 2.7%, and net profit by 10.9% and 6.2%, respectively, to reflect higher order deliveries. Maintain HOLD call on BRC Asia with DCF-derived target price of S$1.92 (COE 13.8%).
- See
Peggy Mak
SAC Capital Research
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https://www.saccapital.com.sg/
2022-05-25
SGX Stock
Analyst Report
1.92
UP
1.640
